Ask Matt: What's wrong with panic selling?

A: Defensive investors like to think there’s there’s nothing wrong with bailing out on stocks, if it saves them from suffering a bigger loss. But panic selling is a symptom that shows the investor is suffering from a bigger sickness: A lack of a strategy.

Emotion has no place in investing. When you’re letting that sick feeling in your gut on days stocks are down govern your investment decisions, you have a problem. If you want to have any chance of success in investing long term, before you buy your first investment you need to know what your investment goals are. You should know, before buying any stocks, how much downside you’re able to take.

Only after determining how much risk you can stomach should you start buying investments. Period. Panic selling rarely works out, at least on a reliable basis. If you’re selling or buying just because everyone else is, that means by definition you’re dooming yourself to disappointing returns. After all, if you do happen to panic sell at the right time, which is unlikely, who’s to say that you’ll decide to get back into stocks before they’ve run up coming out of a market bottom.

Mathematics makes a solid portfolio, not panic. Mutual fund companies and personal advisors have models to use if you don’t have one.

USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.